Weekly Commentary – 26th February 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,605 million (4.67 months of import cover). This meets CBK’s statutory requirement to endeavor to maintain at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

Inflation

Overall year-on-year inflation increased to 5.8% in February compared to 5.7% in January. This was attributable to an increase in fuel prices. Food and non-alcoholic drinks and transport indices recorded the highest increase.

Currency

The Kenyan Shilling depreciated against all major currencies. It depreciated against the Dollar to trade at Kshs 109.80 from Kshs 109.55 the previous week. It also depreciated against the Euro and the Pound to trade at Kshs 133.83 and Kshs 154.84 from Kshs 132.29 and Kshs 152.66 the previous week respectively. The weakening of the Kenyan shilling is attributable to increased dollar demand from importers.

Liquidity

Money markets remained relatively liquid supported by government payments which partly offset tax remittances. The inter-bank rate increased to 4.20% from 4.01% recorded in the previous week. The inter-bank volume increased to Kshs 15.19 billion from Kshs 12.52 billion. Commercial banks’ excess reserves stood at Kshs 12.5 billion which is an increase from Kshs 10.9 billion. Remittance inflows increased 7.32% on a yearly basis to USD 278.40 in January 2021 from USD 259.4 in January 2020. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 131.97% from 124.91% the preceding week and remained over-subscribed. The over-subscription in T-Bills is attributable to improved liquidity in the money market. The 91-day paper was over-subscribed at 157.04% up from 116.86%, the subscription rate for the 182-day and 364-day papers stood at 102.28% and 151.64% from 114.03% and 139.01% respectively. The yields on the 91-day paper increased marginally to 6.931% from 6.911%. The yields on 182-day and 364-day papers also increased marginally to 7.72% and 9.01% from 7.68% and 8.93% respectively.

T-Bonds

The bonds market had a high demand for the weeks bond offers. Bonds turnover decreased, with bonds turnover closing in at Kshs 15.08 from Kshs 16.52 billion registered in the previous session. The overall subscription rate for the bonds offered was 62.42%. The reopened auctions were FXD1/2013/15 and FXD1/2012/20 with fixed coupon rates of 11.25% and 12%, and effective tenors of 7.1 years and 11.8 years respectively. The government rejected high bids only accepting Kshs 10.91 billion out of the Kshs 11.24 billion worth of bids received, translating to an acceptance rate of 97.1%.

Equities

The Equity Market closed the week with 10.2 million shares traded with a turnover of Kshs 352.8 million against 18.3 million shares traded with a turnover of Kshs 488.5 million in the previous week. Market capitalization decreased slightly by 1.1% to Kshs 2.54 billion.

NASI and NSE 25 declined by 0.10% and 0.37% respectively. NSE 20 increased by 1.44%. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded by EABL, Diamond Trust Bank, KCB Group, and Equity Group which declined by 2.92%, 2.12%, 1.9% and 1.43% respectively.

The Banking sector had shares worth Kshs 542 million transacted which accounted for 17.05% of the week’s traded value, Manufacturing & Allied sector represented 14.19% and Safaricom with shares worth Kshs 2.1 billion transacted, contributed 66.52%.

Top Losers	W-o-W
Transcentury	-15.56%
NBV	-8.19%
Standard Group	-5.26%
Sanlam	-5.15%
East African Cables	-4.26%

Alternative Investments

The derivatives market over the week recorded 62 contracts having a turnover of Kshs 6.7 million from 56 contracts having a turnover of Kshs 2.7 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.44 million with 23 deals which is a decline from Kshs 1.36 million with 45 deals which was recorded over the close of last week.

The ETF market registered no activity during the week.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	-2.45%
Dow Jones Industrial Average (DJI)	-1.78%
FTSE 100 (FTSE)	-2.12%
STOXX Europe 600	-2.38%
Shanghai Composite (SSEC)	-5.06%
MSCI Emerging Markets Index	-6.35%
MSCI World Index	-2.83%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.21%
JSE All Share	-2.18%
NSE All Share (NGSE)	-0.95%
DSEI (Tanzania)	-0.52%
ALSIUG (Uganda)	-2.66%

European stock futures fell during the week, following steep losses on Wallstreet in the previous session as a jump in bond yields and concerns of lofty equity valuations hammered demand for risky assets. The selloff saw Benchmark Treasury yields plunge back below 1.5%.

Asian stocks declined after the ten-year Treasury yield rose as much as 23 basis points to 1.6% overnight. The surge gathered pace while holders of mortgage securities were forced to offload government bonds. As hopes for a global economic recovery from COVID-19 continue to grow, investors are shifting from COVID-19 era winners to those poised to benefit from an end to lockdowns.

On the regional front, most indices declined. DSEI declined as Tanzania reported a surge in COVID 19 cases.

On the global commodities, the Crude Oil WTI increased by 3.81% over the week and ICE Brent Crude increased by 66.13%%. Gold Futures declined by 2.73% to settle at $1728.80.

Week’s Highlights

• Interest rates on fixed deposits dropped to an eight-year low of 6.3% from 7.1% in 2019, on bankers reduced appetite for savings as a result of increased fixed deposits from wealthy investors due to reduced investment opportunities and subdued demand for loans.

• Kenya will start to gradually cut duty on goods from the UK, seven years after the post-Brexit trade agreement with UK is enforced, giving time for domestic firms to enhance their competitive advantage. Kenya offers to open 82.6% value of total trade to UK, thus flooding the local market with finished and unfinished goods excluding agricultural and industrial products. British firms will ship in goods duty-free for 25 years thereafter.

• BOC Kenya has opted not to recommend the company’s takeover by Carbacid investments to its shareholders, after an independent advisor hired to review the transaction declared Carbacid’s offer of sh.63.5 per BOC share as an undervaluation. Carbacid’s six months revenue increased to KSh449.7 million, a 27% improvement from the KSh352.9 million revenue earned in the same period in 2019.

• Kenya intends to create a special fund for settling fast-maturing loans in the next financial year as a way of mitigating future cashflow crises arising from heavy debt repayments. The treasury will come up with and gazette rules for the establishment of the fund to specifically pay off maturing debts, buy back bonds when interest rates are low and retire some of the debts early to avoid higher costs in the future. The current debt maturities are projected to jump by 65.17% to 493.12 billion in the next two fiscal years.

• Acorn Holdings has quoted its two development and income REITs products worth 7.5 billion at NSE’s recently opened unquoted securities platform, whose main objective is to offer a more transparent over-the-counter marketplace for shares of unlisted companies. The company seeks to grow its capacity in student hostels.

• Top digital lenders cut lending by more than 50% to Ksh. 2 billion a month after CBK kicked them out of credit reference bureaus – a move that denied members borrower profiles necessary for making quick lending decisions. They are therefore not able to verify customers’ credit details and fear for risk of default.

• Rwanda’s inflation fell to 3.5% in January from 3.9% in December and the central bank projects inflation in 2021 will remain around the lower bound of 2.0%, lower than its inflation target due to subdued inflationary pressures. The central bank left its benchmark interest rate steady at 4.5% in a bid to support the financing of the economy by banks.